Tuesday 22nd November 2016
In this issue of Money Truths….
- There is a war going on….
- Last week in India….
- A ‘solution’ that seems unrelated to the ‘problem’….
- A war being fought on multiple fronts….
- Theory & practice….
There is a war going on….
There is a war going on….
It’s not the kind of war that pitches nation against nation….
It’s not the kind of war in which bombs are dropped or boots put on the ground….
This is another kind of war – an insidious war being fought one small incremental step at a time by bankers and bureaucrats….
The ultimate objective is to eradicate physical coins and notes from the economies of the world. This is the war on cash….
This is a war where the ultimate ambition is to implement a global electronic economy – one where physical money plays no part; one where all units of currency are electronic; one where all financial transactions produce a paper-trail that will be logged, recorded and stored.
In this new world, slowly and stealthily being constructed in plain view by state planners across the globe, financial privacy will cease to exist.
No financial transaction will fly below the radar. Every penny you earn and spend – and what you spend it on – will be a matter of permanent record.
Last week in India….
The official line is that a move away from cash and towards electronic forms of payment is necessary to combat crime, corruption, terrorism and tax-evasion – all of which, we are told, depend on cash (particularly large denomination notes) to flourish….
Prominent economists are encouraging governments to withdraw large denomination notes from circulation, to restrict cash withdrawals and deposits and to limit the value of cash payments.
And this is not just empty theorizing. Moves are playing out. Look what’s happening in India….
The government removed 500 and 1000 rupee notes (the highest denomination notes) from circulation – rendering 86% of the cash in the economy worthless at a stroke. They gave just 4 hours-notice of their intentions.
New notes – 500- and 2000-rupees – had been printed as replacements. Indians can exchange old notes for new ones. But they must engage with the banking system to do so.
There’s no limit on deposits or exchanges. But the public only has until the end of December to act. And deposits over 250,000 rupees (£2900) will be investigated.
Depositors will need to prove they have paid tax on that money or they’ll be charged the outstanding tax plus fines.
A ‘solution’ that seems unrelated to the ‘problem’….
India is very much a cash economy….
Most people are paid in cash and the government reports that 99% of Indians failed to pay any tax at all in 2013. Houses are routinely purchased by people with suitcases full of 1000-rupee notes. Bribery and official corruption is endemic. Cash is king.
On the face of it, last week’s actions are designed to flush this black money out into the light. Fair enough. Indian Prime Minister, Narendra Modi, was elected on promises he made to tackle those issues.
Most Indians are supportive of measures that target those who benefit most from the ‘black’ economy – at the expense of economic growth and the development of India’s infrastructure.
But it seems odd that one of the notes replacing the old 1000-rupee note – the note that is apparently so beneficial to India’s culture of tax evasion, corruption and financial criminality – is a 2000-rupee note.
How does an even larger denomination note serve to eradicate the problems presented by the 1000-rupee note?
I can’t see the logic. Surely a larger denomination note can provide an even more convenient vehicle for ‘off-the-record’ financial activity?
Maybe I just don’t get it. Maybe the government is trying to save paper. Or maybe last week’s events represent a sleight of hand.
Maybe this is just an opening move designed to soften-up the Indian public for bigger changes….
Problems arising from one large denomination note cannot be solved by issuing a note of larger denomination. The government’s solution doesn’t seem tailored to the problem. The smart money is on tax evasion and corruption continuing.
Meanwhile though, Indians have been introduced to the idea – in theory and practice – of big changes to the system.
If problems persist (as logic would suggest), maybe the Indian public will be that much more susceptible and agreeable to an even more radical solution to the outstanding ‘problem’.
Maybe the complete removal of physical cash from the economy will meet with that much more approval.
A war being fought on multiple fronts….
The Indian story will play out long term. There will be twists and turns. We will see where it leads. But the war on cash is not just being fought in India….
Last week in Australia, USB bank proposed eliminating Australia’s $100 and $50 bills from circulation – claiming it would be ‘good for the economy and good for the banks’.
This is no opening salvo. The ‘cashless world’ lobby has been chipping away at the Australian psyche for years – and is confident of success.
Last year another Australian bank, Westpac, published its Cash Free Report – predicting a cashless Australia by 2022.
In July, Australian payments firm Tyro said it is ‘only a matter of time’ before Australia abolishes cash.
Just last week Citibank announced that some Australian branches are to go cashless – facilitating only digital transactions.
In Sweden 900 of 1600 bank branches no longer carry cash. Nor do they accept cash deposits.
And try paying a bus fare in cash. It’s no longer possible. Sweden is expected to be totally cashless within 5 years. Other Northern European countries are not far behind.
In Uruguay, it’s no longer possible to buy petrol with cash. The government plans to forbid employers from paying workers in cash.
Here in Britain cash payments are in decline. The UK Cards Association says 77% of retail sales in June were paid for with a card, up from 75% the year previous. Contactless cards are gradually succeeding in weening consumers off carrying and using cash.
All over the world, at every turn, people are slowly but surely being turned away from cash – be it via public policy, banking regulation or new technology.
Inch by inch planners are succeeding in the drive to phase out cash. It won’t happen overnight. But it is happening right now. The war is at a more advanced stage than you might think. One day soon the cash you take for granted will not exist.
There is no turning back this tide. The future is cashless. I can offer no solutions to the dilemma. But you should know what living in a cashless society will mean….
Theory & practice….
Government, media, banks and academics tell us everybody will benefit from a cashless society.
The banks will certainly benefit. In a world of electronic currency, everybody is forced to use the banking system – sticking money under the mattress will no longer be an option. Bank deposits will rise. And with them bank profits.
With all savings lodged in banks, government will benefit too. Government has regulatory control over banks and politicians will find it easy to exert more control over your savings – taxing, imposing capital controls and engaging in civil asset forfeiture….
I’m not sure how ordinary individuals will benefit….
There will be no financial privacy. Every transaction you make will be on record – what you spend, when, who with and on what.
It isn’t only criminals and tax evaders who appreciate privacy. Sometimes we all like to use cash and keep things private. Who wants the wife to know how much he spent at the pub? And who wants the details of his every transaction sold to government, corporations or the highest bidder?
You will be unable to reduce your exposure to risks within the banking system. You will not be able to eradicate the middleman. You will be hostage to banks – their policies, controls, whims, greed, mistakes and failures.
And, when all money is electronic, it will be easier for banks to impose new regulations and controls without your consent. Cashing out because you don’t like the way your bank is behaving will not be a viable option.
Hoarding a nest-egg of cash for emergencies won’t be possible either. And how would you escape negative interest rates in a system where electronic money is perpetually on deposit? If you wanted to avoid what amounts to a de facto tax, you would have no choice but to spend or invest in riskier assets like stocks and bonds.
And you will have no option but to trust your bank implicitly – to use and store your money wisely and to protect it against sophisticated forms of criminality. The Swedish drive towards a cashless society has seen cases of electronic fraud rise dramatically.
In short, the introduction of a cashless society will effectively abolish any control you enjoy over your own money and hand that control instead to bankers and to government.
No doubt some people will like the idea. But it sounds less than desirable to me. Which is one reason why I’m taking an interest in the development of alternative currencies. But that’s a subject for another day….
That’s how it looks from here….
I’ll be back with more next week.
All the best,